What bled Detroit dry? (It's not pensions)

By Ross Eisenbrey

Updated 8:40 PM ET, Tue December 17, 2013

Photos: Detroit, the glory days7 photos

Detroit, the glory days – Detroit has become the largest American city to declare bankruptcy. People who spend any time there grow accustomed to hearing the words "used to be," says Heidi Ewing, co-director of "Detropia," a documentary about the Michigan city and its uncertain future. An aerial view, circa 1950, of the old Tiger Stadium and the downtown skyline shows the Motor City in all its former glory.

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Photos: Detroit, the glory days7 photos

Detroit, the glory days – The American automobile industry has been centered in Detroit. Rows of these behemoths in a city parking lot around 1960 show the industry at its height.

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Photos: Detroit, the glory days7 photos

Detroit, the glory days – Music also played an important role in the success of Detroit, where Motown Records was headquartered in the 1960s. Here Stevie Wonder, left, and Marvin Gaye record in a Motown studio in Detroit in 1965.

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Detroit, the glory days – A mother gives her child advice during a boxcar race in Livonia, Michigan, a Detroit suburb, circa 1955. The move to the suburbs accelerated, especially after rioting that devastated Detroit in 1967.

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Detroit, the glory days – Downtown Detroit is full of people on a rainy afternoon circa 1955. Looking at old photos of the Motor City, Ewing says she always was a bit envious of the city life that eluded her and her siblings who grew up in the suburbs.

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Detroit, the glory days – Tugboats race on the Detroit River in 1954.

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Detroit, the glory days – Pete Babando, left, and Harry Lumley of the Detroit Red Wings celebrate in the locker room with the Stanley Cup after defeating the New York Rangers in the 1950 Stanley Cup finals in Detroit.

He says Detroit bankruptcy caused by same dynamics creating inequality in the nation

A judge's ruling that the city of Detroit can move forward with bankruptcy and strip the city's public workers of their modest pension benefits will have a devastating impact on Detroit's middle class — many of whom are African-American — and the city's ability to rebuild a strong and sustainable economy.

The largest municipal bankruptcy in our nation's history, the Detroit decision charts a course where Wall Street banks and bondholders are at the front of the payment line while city residents, police officers, firefighters and other public employees are left at the rear, with only pennies.

Kevyn Orr, Detroit's unelected emergency manager, misled the public and succeeded in setting a dangerous precedent that will have ripple effects for other cities and states still struggling to get back on their feet in the post-recession economy.

Ross Eisenbrey

Michigan Gov. Rick Snyder and Orr, a former corporate bankruptcy lawyer, frequently cited the figure of Detroit's $18 billion in long-term debt as the reason the city must declare bankruptcy. According to a recent report, "The Detroit Bankruptcy," written by former Goldman Sachs investment banker Wallace Turbeville, not only is $18 billion an inflated and inaccurate estimation of Detroit's long-term debt, it is irrelevant. Unlike corporations, cities cannot be liquidated, therefore cash flow, as opposed to long-term debt, is what must be addressed.

A depleted tax base: The city's wealthier white population has declined by 1.4 million since the 1950s, leaving behind an almost entirely African-American and much poorer population. The remaining tax base continues to decline as unemployment stays stubbornly high: In 2008 alone, the number of working Detroit residents dropped by roughly one-quarter, further diminishing the city's income tax receipts. Property tax revenue also dropped precipitously as home values went through the floor.

Retired city workers protest in front of the U.S. Courthouse where a judge ruled that Detroit is eligible to file for bankruptcy.

Corporate subsidies and tax loopholes: While public workers were laid off and had salaries cut, Detroit gave away millions of public revenue in tax loopholes and subsidies to big corporations. A wealth of research finds that tax breaks like these are ineffective and it is apparent they have done little to create good jobs for Detroit residents. These tax breaks should be on the table, just like other obligations of the city in resolving the cash-flow crisis.

The dynamics at play in Detroit are the same dynamics creating the growing wealth gap and keeping our economy from making a lasting and sustainable economic recovery. While Wall Street and corporations profit handsomely from a city's decline, public workers—the city's middle class—have sacrificed time and again.

The Motor City sputters to a stop

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Detroit's road ahead to better times

Instead, Detroit's cash flow shortfall must be addressed by fixing the problems that caused it in the first place. Banks must be told that they have profited enough from interest rate swaps that helped create this mess and will receive no more. The state needs to collaborate by increasing available revenues. Corporate tax loopholes must be closed and ineffective subsidies ended.

Like other cities, Detroit can work its way back toward a healthy local economy with good jobs, quality public services and a robust tax base. But making that happen depends on honoring the promises made to workers and ensuring that Wall Street and big corporations pay their fair share.